From payments to lending to insurance to checking accounts, Amazon is attacking financial services from every angle without applying to be a conventional bank. In this report, we break down everything we know about Amazon’s foray into financial services, and where it's rumored to be looking next.
In 2017, Andreessen Horowitz general partner Alex Rampell said that of all the tech giants that could make a major move in financial services:
While the anticipation for Amazon’s plunge into banking gets louder each year, it’s important to first understand Amazon’s existing strategy in financial services — what Amazon has launched and built, where the company is investing, and what recent products tell us about Amazon’s future ambitions.“Amazon is the most formidable. If Amazon can get you lower-debt payments or give you a bank account, you’ll buy more stuff on Amazon.”
Based on our findings, it’s hard to claim that Amazon is building the next-generation bank. But it’s clear that the company remains very focused on building financial services products that support its core strategic goal: increasing participation in the Amazon ecosystem.
As a result, the company has built and launched tools that aim to:
In parallel, Amazon has made several fintech investments, mostly focused on international markets (India and Mexico, among others) where partners can help serve Amazon’s core strategic goal.
- Increase the number of merchants on Amazon, and enable each merchant to sell more
- Increase the number of customers on Amazon, and enable each customer to spend more
- Continue to reduce any buying/selling friction
In aggregate, these product development and investment decisions reveal that Amazon isn’t building a traditional bank that serves everyone. Instead, Amazon has taken the core components of a modern banking experience and tweaked them to suit Amazon customers (both merchants and consumers).
In a sense, Amazon is building a bank for itself — and that may be an even more compelling development than the company launching a deposit-holding bank.
This report is a collection of everything we know about Amazon’s foray into banking, financial services, and fintech. We will be updating this brief on an ongoing basis as more relevant data, investments, news, and products are released.
Table of Contents:
2. Market strategy outside the US
3. Rumors: What will Amazon do next?
4. Closing thoughts
Product strategy: Amazon takes on financial services
Amazon is notorious for spreading its bets before going all-in on a new product, and the financial services space is no exception. Through trial and error, the company has set up key financial pillars across payments, cash deposits, and lending. As we’ll dive into below, all are related to Amazon’s broader growth and product strategies.
Amazon Payments
Amazon has aggressively invested in payments infrastructure and services over the last few years. That’s unsurprising, given that the payments experience is so close to Amazon’s core e-commerce business. Making payments more cash efficient for Amazon and frictionless for customers is a key priority.
Today, Amazon Pay has evolved to include a digital wallet for customers and a payments network for both online and brick-and-mortar merchants. In the last year, Amazon has been investing in growing Amazon Pay’s marketplace, including forming its first partnership with an acquiring bank Worldpay.
While Amazon Pay is the company’s latest iteration on payments, Amazon experimented with payments functionality for over a decade. Below is a timeline of some of the major Amazon Pay milestones:
Amazon’s first known payments product, Pay with Amazon, launched in 2007. That same year, the company acquired TextPayMe, a peer-to-peer (P2P) mobile service that was relaunched as Amazon Webpay in 2011.
Webpay failed to gain user traction and was shut down in 2014, unlike up-start Venmo (now a part of rival payments processor PayPal). It’s likely that Amazon was too early to P2P payments.
In 2007, the company also invested in Bill Me Later (fka I4 Commerce). Bill Me Later was one of the earliest fintech payment platforms on the market and gave big retailers the ability to offer flexible financing programs. Although Bill Me Later was quickly scooped up by PayPal in 2008, Amazon has remained focused on reducing payment friction for customers.
Over the last few years, Amazon has used a variety of techniques to strengthen its payments experience, including launching digital wallets through Amazon Pay, acquiring tech talent of failed mobile payments startup GoPago, building a variety of tech in-house, and most recently opening up to partnering with merchant acquirers outside of Amazon’s marketplace.
Traction/Metrics:
Today’s iteration is Amazon Pay, a digital wallet for customers and a payments network for both online and brick-and-mortar merchants and shoppers.
In addition to serving Amazon’s core customers, payments is an attractive revenue line when thinking about the scope of the payments market. Swipe fees alone are a $90B-a-year business for banks, card networks like Visa, and payment processors like Stripe.
Amazon is finding ways to attract merchants to the Amazon Pay network beyond its experimentation with swipe fees. The company announced it would pass on the special card savings Amazon gets from card networks (because of the volume of purchases they can guarantee) to retailers that adopt Amazon Pay. Leveraging scale and competing on fees is a classic customer acquisition strategy in Amazon’s playbook.
And while the company is famously secretive about reporting customer growth and business metrics, it reported that Amazon Pay had 300M customers in 170 countries through Q1’17. Payments made with Amazon Pay spiked following service expansion to new geographies — France, Italy, and Spain — and to new verticals, including government payments, travel, insurance, entertainment, and charitable donations.
However, Amazon has had some missteps with Amazon Pay. Its most famous failure was Amazon Local Register. With the talent acquired from GoPago, Amazon launched Amazon Local Register, a card reader for SMBs in August 2014. At the time, the company charged competitive rates (a full percentage point less than Square). Each reader cost $10, and it seemed like a formidable rival to PayPal and Square’s readers.
But in October 2015, the company announced it would be shut down. Despite charging lower fees, the company failed to gain enough traction with merchants who feared giving Amazon detailed data on their overall business operations.
Eventually, Amazon launched a “Pay with Amazon” button for mobile and created a team with the goal of expanding payments across the web and on apps........MUCH MORE
